So far in 2019, the internal revenue service (IRS) issued $142 billion worth in tax refunds.
For the W-2 employees, tax time means they get the extra chunk of cash because the IRS takes too much out of their checks (unfortunately, the same can’t be said about independent contractors and business owners).
In order to pay taxes or receive a refund, you need to submit sensitive information to the IRS. This means you can easily be the victim of a tax scam. Arm yourself with the information in this post so that you don’t fall victim to IRS mail scams and other common tax scams.
Each tax season, scams targeting taxpayers appear out of the woodwork in an attempt to steal your returns, tax payments, or even your entire identity.
Some tax scams occur without you knowing it.
Most of these tax returns occur as soon as it’s possible to file, so it’s a good idea not to put your taxes off until April. If you already registered for that year, then no one else can.
If your Social Security number is at all compromised, you remain at risk of losing your refund. All a scammer needs is that unique number to post your tax return in your name and then pocket your refund.
It’s not always possible to know if someone has your Social Security number. The best way to catch them is to review your credit history to see whether someone has opened any accounts in your name.
These tax scams are so well known that the IRS calls them the “Dirty Dozen,” and lists the most common types of fraudulent transactions on its websites. We all think we could spot a fake when we see one. But at that moment, it’s much harder than you think.
A scammer may call from an IRS listed number, send an official-looking letter, or even turn up in person. As soon as they get your money or Social Security number, they disappear as quickly as they arrived.
Every taxpayer should know about these commonly seen tax scams to protect your identity and your money. Here are the ones the IRS wants you to know about:
1. IRS Mail Scams
Anyone who keeps up with IRS scams knows the IRS regularly contacts taxpayers via mail. Unfortunately, scammers also know this. This is why they will send fake IRS invoices through the mail. And these are the hardest to authenticate.
However, there are ways to identify an IRS mail scam. First, look at the directions. The IRS will ask you to make your checks out to the United States Treasury. Many scammers don’t realize this significance. They will ask you to make checks out to the IRS.
You can also look at the address. The IRS has many offices, so it’s easy to overlook an unfamiliar address. However, it’s crucial you do your research and ensure the invoice was sent from a real IRS address.
If you ever received an IRS invoice, they’re usually pretty lenient about the payment due date, giving you a couple of weeks before they charge additional interest. If you receive a letter asking for immediate funds, this should be a red flag.
Are you still unsure about an IRS invoice? Do one of two things:
- Call the IRS and ask if the invoice is legitimate
- Search for your invoice on the IRS website
If the IRS can’t find a record of the invoice, don’t pay it.
2. IRS Phone Call Scams
A number pops up on your phone, and caller ID identifies it as the IRS. You receive a phone call saying you either owe money to the IRS or the IRS is suing you.
It’s important to remember that the IRS will never – repeat never – make contact with you by phone.
However, the person on the other end of the line may be as convincing as they are threatening. Many scammers call to request a tax payment and direct you to a nearby store or a venue to transfer money. If you don’t agree to pay, they may threaten you with arrest, criminal action, or even deportation if you are not a U.S. citizen.
All these calls come from criminals attempting to steal your money. The ideal way to handle it is to hang up and report the incident to the police. You may find the same person has targeted many people in the area.
Unfortunately, many people fall victim to IRS scam calls. The scammers are playing the game smarter and smarter as time goes on, using methods such as hiding their caller ID or calling with a fake caller ID, attempting to look more legitimate.
They call with IRS employee badge numbers and use aggressive tactics, forcing you to pay. They usually threaten you with arrest.
The scammers ask for specific payment transfers, either from a wire transfer or a debit card. This makes their payment hard to trace and contest.
If you receive any call from the IRS, it’s a scam. The IRS primarily contacts you through the mail. The IRS also doesn’t use aggressive or threatening tactics. Always consult with a tax attorney before providing any sort of information over the phone to anyone as it is likely NOT the IRS.
3. Email Phishing Scams
Email phishing scams are increasingly common, and it comes in two primary forms.
An increasing scam is the W-2 phishing scam. Someone posing as the IRS or even as your boss sends an email requesting your W-2 or even the W-2s of all the staff at your company. If the email claims to be the IRS, it is 100 percent fraudulent. The IRS never gets in contact by email.
If the email claims to come from a payroll company, your boss or HR department, or from another reference point that you know, circle back and double check the request. Call the person on a phone number you already have for them and ask them if they made the request. There’s a good chance they didn’t, so you can’t be too cautious.
Another increasingly common phishing scam occurs among individual taxpayers. Criminals send fake emails from an IRS-adjacent address mentioning that you have a tax bill you don’t expect and providing you a chance to pay it. The same may be true of a tax refund and an opportunity to collect it.
Again, these are usually fraudulent and are attempts to steal your credit card number, money, or even better – your Social Security number, which allow them to take your identity.
Like phone calls, the IRS won’t likely email. If you don’t have an online payment plan set up with the IRS, the IRS shouldn’t have your email address in the first place. However, these emails have been successful. That’s because they look legitimate. They use certain IRS branding such as their logo.
While some use the same aggressive sales tactics as the phone scammers, scammers have become smarter and use more passive ways to retrieve your information. This includes emailing you about confirming or changing your filing status, emailing you about your refund, or even to create a PIN number.
While these seem like a legitimate and even an innocent reason to contact you, they are easy to be tricked by. That’s because they force you to enter sensitive data in a separate web page. This web page looks like an IRS page but it’s not — it’s a fraudulent page designed to steal your information.
Some email scams may also force you to download files that contain malware. This malware can go in your system and steal your sensitive data.
There are three things you should do when you receive an IRS scam email:
- Don’t open it, download anything, or visit the web page they provide.
- Forward the email to the IRS ([email protected]). The IRS is trying to crack down on fraudulent emails.
- After sending the fraud email to the IRS, delete the email.
As mentioned before, if the IRS requests any changes or confirmations made to your account or for your return, they will mail you a letter. You can easily trace this letter back on the IRS website or call the IRS and ask.
Did you receive an email that looks like phishing? The IRS wants you to report it. You can do so via this link.
4. Text Message Scams
This scam is becoming more common. You’ll receive a text message claiming to be the IRS.
They will likely send you links or ask you to respond. This is another phishing scam. The fraudsters will likely download malware on your phone, stealing your information.
It’s a scam. Like phone calls, the IRS will never text you under any circumstance. You can text the IRS the fraudulent text message at (202) 552-1226. This way, the IRS can track down these phishing scams.
5. “Ghost” Tax Preparer Scams
Because a tax preparer doesn’t need to be a CPA, it leaves a hole in the fence for criminals to sneak through and pose as a false tax preparer.
These people pretend they are professionals and may be more or less convincing. They tend to prey on people who don’t know the tax system well or who are new to the U.S. and aren’t yet confident English speakers.
You can get scammed by these people in many ways. They may take an oversize fee for their services (and not even file your taxes). However, they may also make intentional mistakes on your taxes to inflate your refund and then take the refund from you.
Then, not only do you not receive your refund, but you are more likely to be audited and have a larger tax bill that also includes penalties for not paying the tax initially due.
To avoid these scammers, always use a recommended professional or use the IRS’s Federal Tax Return Preparer directory.
Ghost tax preparers use unethical and oftentimes illegal practices. They win clients by advertising “big refunds.”
They get the name “ghost” tax preparers because they don’t sign their name on your refund or won’t mail your return. They typically ask you to sign off on everything and request you mail it.
The easiest way to tell the difference between a ghost and a legitimate tax prepare is how they charge you.
Overall, a ghost tax preparer will request they take a percentage of your refund. A legitimate tax preparer charges you a fee that you pay separately.
Ghost tax preparers aren’t the only example of unethical tax preparers. Below are even more examples of actions that prove a preparer is unethical:
6. Falsifying Income & Frivolous Tax Returns
As mentioned previously, many unethical tax preparers find clients by offering the “biggest return.”
A common method of receiving big or paying little is by claiming false income. Depending on your filing status, this either encompasses stating you paid too many taxes than what you paid or earned less than what you earned, resulting in paying little in taxes.
Some may even falsely enroll you into certain programs, such as claiming you qualify for certain tax credits (when you don’t) and listing you qualify for certain deductions (when you don’t).
Unethical preparers can get away with this because it’s hard to trace. Unfortunately, if the IRS does see through this, you’re the one who receives the penalty.
The “frivolous tax arguments” scam is also something to beware of. Here, a person or agency will invite you to avoid your taxes by arguing that you should not have to pay taxes. These reasons are usually bizarre and frivolous, but they do put a stay on your taxes while you make your court case.
You might be asked to pay a fee to join a lawsuit or file your own, but they also promise you will be free from the shackles of federal taxation. These cases are almost always thrown out in court. They rarely, if ever, work, and if they do, you need a legitimate legal argument.
Moreover, making a claim could cost you far more than just delayed taxes. Depending on the severity of the penalty, you’ll be audited and forced to pay back interest and even be charged with a hefty fine. The government can slap you with a $5,000 fine for filing one of these returns. Plus, if you pay your taxes late, the IRS also adds penalties and interest.
It’s simply not worth it.
7. Inflated Returns
In some cases, falsifying income or tax credits is hard to trace. But inflating a return is very easy to trace. The faulty preparer uses the current inflation rate to increase your return.
In reality, while inflation may cause a return increase, only specific factors qualify certain taxpayers for this.
How do you know you truly qualify for an inflated return?
Identify the preparer’s behavior. They shouldn’t tell you that you qualify before looking at your tax documents.
In addition, look for the other common red flags, such as the preparer not signing off on your return, taking a percentage of your return, and forcing you to file the return.
8. Avoiding Offshore Income Reporting
Do you have an offshore bank account? Like tax shelters, foreign funds are also real and used often by the super-wealthy and corporations to avoid taxes to the best of their ability.
The average person doesn’t have access to offshore accounts and moreover doesn’t have the minimum resources needed to start one. So if you get an email or a phone call about moving money to keep your income out of the hands of the taxman, it is very likely a scam.
Offshore fund scams are horrible for the people who fall victim to them. Not only will you lose your money to the account or trust that you have no control of, but the IRS can prosecute you for tax evasion.
Even if it sounds legitimate and tempting, remember that hiding money from the IRS is a crime – and you will get caught. Another way a tax preparer can promote a bigger return or fewer taxes paid is by urging you to not report the income or money in any offshore accounts. Doing so can result in strict enforcement from the IRS.
9. Excessive Business Tax Credits and Deductions
The IRS grants tax alleviation for businesses and self-employed individuals by allowing them to take additional business deductions. Some businesses may qualify for specific tax credits. However, businesses need to still comply with the tax law in order to receive these deductions and credits.
Lying about deductions and credits is a common way for unethical tax preparers to promote their services to businesses. By “paying less business tax,” you’re lying to the IRS. A common method is claiming deductions on non-qualifying expenses. For example, let’s say you took a vacation. This trip had nothing to do with work.
However, your tax preparer may urge you to lie and say all of those travel expenses were work-related. A common example of falsely claiming credit is claiming a research credit. The research credit benefits companies that spend money on tools that go toward research and development.
This credit is commonly claimed by life science and technology firms. However, if you can’t prove your business expenses fall in the research category, you don’t qualify for this credit.
10. Natural Disaster Scams
If a natural disaster hits your area, the IRS is kind enough to extend the tax deadline, often by several months or even a year. However, natural disasters are also an opportunity for scammers to take advantage of taxpayers.
The most common example of scammers is those posing as the IRS. They tell victims they’re providing natural disaster relief. They could contact you for several reasons, such as helping you file your return or file a casualty loss claim.
This is a scam because the IRS won’t solicit you for help. They may provide a service or hotline, but no IRS employee will personally offer to help you. Another common natural disaster scam is a company posing as a charity. They will create a website, urging people to donate. Unfortunately, that website is not an IRS-owned charity and none of the proceeds will help natural disaster victims.
If you do want to donate to real charities, the IRS provides a list of legitimate charities that help out disaster victims in need. In addition, those charity donations are tax-deductible.
11. Identity Theft
Be careful which preparer or service you trust with filing your tax return. These services not only fail to file your return, but they also steal your identity along with it.
When you file your taxes, you provide sensitive information. This includes your social security number and bank account information. This information alone is enough for a scammer to steal your identity. How do they gain this information? They pose as a preparer or a tax preparation service.
The best course of action to prevent this is by only taking your service to a reputable tax preparation professional or use reliable software. All tax professionals require a license and a tax preparer identification number. From here, take advice from the ghost preparer section, such as if they will sign off on your return and will file it.
If you want to use tax preparation software, don’t settle for less than the major brands. While there are new and reliable brands, using the major name brands ensures your return is going to the right place.
12. Promises of Huge Refunds
You don’t need to use a licensed CPA to file your taxes. Many of those who work at your local branches of big-name tax preparing companies aren’t a CPA. Have you seen an advertisement promising you a substantial refund of all or some of your tax?
You might have seen an ad for a tax scam. One way scammers try to gain clients is to tell them they can get you a larger refund than the IRS would otherwise give you. They will tell you that your refund is far too small and you deserve more. They might even try to estimate your taxes off the top of their head.
If someone tells you to sign a tax return or another contract, be skeptical and ask for their credentials. Cross-check them with the IRS tax preparer directory or your state.
13. Tax Shelters and Trusts
Some scammers take an entirely different approach. Rather than steal your Social Security number to try to receive your refund, they claim they can save you money by taking your income and helping you avoid taxes altogether.
Tax shelters and trusts are real and are in use. Many, however, are illegal and require complicated accounting. What is more, the people calling you and offering you a quick ‘in’ are not only likely talking about a product unavailable to you but are also likely selling an illegitimate product that could be entirely illegal.
In other words, they might take your money and run. If you wonder whether or not a tax shelter is too good to be true, ask for an independent or professional opinion. Don’t secure your place with a deposit or wire any money.
14. Charity Scams
You already know that your charitable contributions are tax deductions. But there’s a catch: you can only use the deduction when the charity is an exempt organization.
Scammers may get in touch at any point of the year asking if you want to make a tax-free donation to their 401c3 charity. You can then, as they say, use your contribution to save money on taxes. However, this is not always true, and more importantly, the charity might not be real.
The IRS says these scammers mainly prey on those who lost family members to a disease or through tragic circumstances. They will invite you to participate in a cancer fund or another charity.
If you get an email or a phone call soliciting donations from a charity you did not provide contact details to, then do not give them money. Should you want to give a legitimate contribution to a charity of your choice, do so through the charities official channels – it should then become a tax deduction.
Remember that deductions now only count when you choose to itemize your tax deductions thanks to the 2017 Tax Cut and Jobs Act.
15. Free Money Scams
A unique way of encouraging people to part with their money is by offering “free money” to customers who file their tax returns with their service. Then, when they get your tax returns, they file incorrect returns with exaggerated deductions and credits and then direct the refunds to their accounts.
If someone offers a tax preparation service in your community and promises a bigger refund or “free money,” they are likely illegitimate.
How to Know You’re a Victim of Tax Scams
No one wants to be a victim of a tax scam. However, it can happen easier than you think. Here are common signs you’re a victim.
- You sent the “IRS” money and later notice it’s not on their system
- You receive a letter from the real IRS stating you never filed a tax return (you can call the IRS and confirm it’s them who sent the letter)
- Your tax return is rejected without a clear reason
- You received a tax refund, even though you didn’t file
- You received tax forms from an employer you didn’t work for
- You received a tax transcript, even though you never ordered one
Many of these signs point to identity theft or an unethical preparer.
How to Avoid Tax Scams Targeting Taxpayers
The best way to avoid tax scams is always to work with a qualified and licensed tax preparer or CPA. It’s not hard to find them: they are listed with the state and with the IRS and their contact details match those provided by the government or IRS.
Even though it’s tempting to save money, anyone who contacts you directly – by phone, email, or through an advertisement – presents a significant chance of being illegitimate.
These tax scams are prevalent, and it’s vital to protect people in your life from them. Share what you know about these scams and remind older or vulnerable relatives that the IRS will never call them or send them an email.
Most people want to pay only what they are legally required to pay in taxes as a matter of law. But consequences of using frivolous arguments in tax returns to avoid paying taxes should not be ignored. In addition to owing on past due taxes, one faces stiff penalties and interest. Nevertheless, according to an accountingtoday.com report, the IRS is having particular difficulty recognizing when such arguments are being offered.
If you get any mail from the IRS and you have concerns, show it to a qualified accountant or get in contact with the IRS through the official channels to verify its authenticity. Finally, remember that inflating your deductions or dismissing income isn’t just a mistake. The IRS will punish you for it, and working these avenues too hard may constitute as tax fraud, which is a crime.
Contact Us If You’re a Victim of Tax Scams
Tax scams such as IRS mail scams are becoming more common. Despite these scams being known to the IRS and the public, the IRS says these scams targeting taxpayers are unlikely to go away. Many only intensify and many now occur year-round – not just at tax season. Always find a reputable tax preparer and never send money or give out your sensitive information unless you confirm with the IRS that they’re contacting you.
Do you believe you were a victim and now your identity is compromised? Don’t worry — all hope is not lost. Take a look at our tax fraud investigation services to receive the help you need.